Caribbean & Central America - June 2023

Liza-1, the first offshore oil and gas production block operated by US oil giant ExxonMobil (45%) and partners US firm Hess (30%) and China’s China National Offshore Oil Corporation (CNOOC) (25%), has already begun transforming Guyana’s economy with the International Monetary Fund (IMF) estimating GDP will grow by a stratospheric 37.2% this year. But an unexpected dispute over catastrophe insurance coverage could put the boom on hold.

At first glance, Exxon has put an impressive array of insurance arrangements in place, covering the risk of an oil spill or other catastrophic event. Any losses would in the first instance be met by its local subsidiary, known as ESSO Exploration and Production Guyana Ltd. It also has cover from a wholly owned UK-based insurance company. Together these provide up to US$600m in oil spill cover on media reports. The parent company has in addition guaranteed it will cover up to US$2bn worth of catastrophic losses.

But environmental campaigners in Guyana are not impressed. They point out that comparatively speaking these numbers are pretty small. The Deepwater Horizon explosion and oil spill suffered by British multinational BP in the Gulf of Mexico in 2010 is estimated to have caused total losses of around US$70bn. An offshore oil spill in Guyana could also potentially impact a dozen Caribbean islands which are highly dependent on tourism and fishing.  Essentially, if there is an oil spill, the bulk of the financial burden could still fall on the government – in other words, ultimately on the Guyanese tax payer.

In a ruling on 3 May High Court Justice Sandil Kissoon upheld a complaint which accused both Exxon and the country’s Environmental Protection Agency (EPA) of failing to put adequate oil-spill insurance in place. Kissoon was scathing. Exxon, he said, had “engaged in a disingenuous attempt which was calculated to deceive when it sought to dilute its liabilities and settled obligations expressed in clear unambiguous terms.”

The company’s actions had been “made permissible only by the omissions of a derelict, pliant, and submissive Environmental Protection Agency” the judge said. Kissoon gave Exxon and the EPA 30 days – up to 10 June – to put better insurance coverage in place, or risk formal withdrawal of Liza-1’s environmental operating permit. That would shut down Guyana’s entire oil production, currently running at 380,000 bpd and in effect put the country’s economic boom on hold, as there would be knock-on effects for other offshore drilling projects in the pipeline.

The judge’s interpretation of existing regulations is that the ultimate parent company must provide “unlimited guarantees” to cover all clean-up cost in the event of an oil spill. Exxon described the ruling as “disappointing” and said it failed to appreciate “the financial capabilities of Exxon Mobile Guyana and its co-venturers to meet their obligations, the insurance we already have in place, and the progress toward agreeing to a guarantee that exceeds industry benchmarks”. The Guyanese government said that it would appeal against the ruling since Kissoon “fell into error in his findings”.   

EPA executive director Kemraj Parsram acknowledged the need for the parent company to accept liabilities not covered by local subsidiaries but said his interpretation of the regulations was that it did not require to be “unlimited”.     

Since the ruling, on 16 May Exxon released data showing the value of investments at stake. The company said that along with its partners and contractors it had spent more than US$400m last year, and US$900m since its first oil discovery in Guyana in 2015. It added that by the end of 2022 it was employing over 5,000 local workers which represented 65% of the oil and gas industry workforce. Documents submitted to the court cited by the international media showed that Exxon and its partners had earned US$5.8bn in combined revenues from the Stabroek Block (which includes Lisa-1) last year.

Key protagonists in the dispute are expected to continue attempts to influence the type of insurance cover the industry receives. With Guyana intending to auction a further 14 exploration blocks this year, the government is worried that requiring oil majors to accept “unlimited” oil spill liabilities could scare off new investors. On the other hand environmental campaigners say the oil boom will increase safety risks and distract attention from pressing climate change issues.  Amy Westervelt, an investigative journalist who covers the Guyana oil story, points out that around 90% of the population lives on a thin coastal strip which is not just vulnerable to any eventual oil spill, but also to rising sea levels, with some predictions saying parts of the coast will be underwater by 2030 – in other words, in less than ten years’ time.